MONITOR

Hear no evil

Digital media: Can an “open source” approach be applied to the music business? Magnatune, an innovative record label, thinks it can

IF, AS many people hope, the internet means that the major record labels will gradually become obsolete, what exactly is going to displace them? Apple's iTunes is clearly a part of the future, but it is arguably just a new distribution channel for the major labels' 50-year-old system of big stars and massive marketing budgets. A more radical answer is Magnatune, an independent online record label founded in 2003 by John Buckman. It has all the ingredients that could help future artists bypass traditional labels, earn more money and enjoy greater artistic freedom.

From a listener's point of view, the firm's website is enticing. You can legally listen, free of charge and with high sound quality, to full albums by any of the 200 or so artists who have signed to the label. (Your correspondent was immediately hooked by a song called “Making Me Nervous” by a one-man electro-pop band from Ottawa called Brad Sucks.) Music streamed is free, but to download it to your computer or burn CDs, you have to pay. Just how much is a matter of choice—Magnatune allows you to decide what the music is worth, and to pay as little as $5 for an album or as much as $18. Once paid for, the music is not locked up using “digital-rights management” software, so you are not prevented from making copies. Instead, Magnatune relies on its customers' loyalty to its artists not to pirate their music indiscriminately.

Mr Buckman likens this community-based, free-wheeling approach to that of Linux, the open-source operating system, although the analogy is inexact: Magnatune's customers do pay for music, you cannot remix and redistribute it, and the company does make a profit. What is more Linux-like is Magnatune's desire to unseat the industry incumbents and change the rules of the game by giving the artists a fairer, less restrictive deal.

Magnatune's slogan, “We are not evil”, owes a debt to Google's slogan (“Don't be evil”) and is a sideswipe at the major labels. Its contract is non-exclusive, so musicians are allowed to carry on selling their music elsewhere. And the label gives artists half of the revenues from what they sell online. Major labels typically give 10% or less.

Most of the artists on the site are professional musicians, and many have been signed at some point to the “evil” kind of record label. Some, like Trevor Pinnock, a conductor and harpsichordist, are famous, but others are unknowns who sent in a demo. Magnatune has a dedicated “artists and repertoire” (A&R) man, and gets about 400 submissions from new artists each month, from which it signs five or ten. It restricts itself to seven main genres—classical, electronica, jazz and blues, metal and punk rock, new age, rock and pop and world. Some genres are dying out in the world of physical CDs, says Mr Buckman, and Magnatune will soon be one of the few places you can find them. He is also a devotee of early classical music, which has a strong presence on Magnatune. Around 10,000 people visit the site every day, and one in 42 visitors buys some music—a far better ratio than the average for e-commerce (where conversion rates are typically between 1 in 400 and 1 in 1,000), and not much worse than in bricks-and-mortar music stores, where it takes 20 customers to generate a sale.

Magnatune has exceeded Mr Buckman's expectations in music licensing, another side of the business that has played a big part in helping it reach profitability. For non-commercial use, such as a school project, the site allows music to be used under a “Creative Commons” licence, a concept devised by Lawrence Lessig, a law professor and crusader for internet freedom. For commercial use, Magnatune makes licences available quickly and cheaply online. This business is growing at 30%, as Magnatune has become popular with independent filmmakers looking for soundtracks.

Though plenty of commentators have seized upon Magnatune as the online music model of the future, Mr Buckman has relatively modest aims. “We're going to stick to second-tier genres and we're not going after the majors,” he says. For now, that is probably realistic, since like other internet-music ventures, Magnatune's weakness is that it does not have the resources to propel its artists into the mainstream via radio and television. For that reason, says Mr Buckman, it tends not to get musicians in their 20s sending in music. “They have an unpleasant attitude and still think they'll get the limo and the drugs,” he says.

So artists considering the 50/50 split should remember that Magnatune is, for now at least, a fairly passive label. In contrast, says Brad from Brad Sucks, “the majors front all that money and take a lot of risk and they do deserve to get some money back.” Any artist on Magnatune who was offered a deal with a major would jump at the chance, says Costa Pilavachi, president of Decca Music Group, a classical label owned by Universal Music Group, the world's largest major label.

This month Magnatune is introducing a new marketing strategy: if you buy some music, you are allowed to give it to three friends—another nod in the direction of the “share and share alike” spirit of the open-source movement. And even if Magnatune itself turns out not to be the web-powered destroyer of the major labels that everyone is waiting for, other, different models will come later. Even Warner Music, one of the majors, is said to be planning to launch an internet-only “e-label” later this year. It will only take one rock star born on the internet, after all, for everyone to pronounce the old model completely dead.